Managing the US Defense Industrial Base: A Strategic Imperative

MIKE AUSTIN

From Parameters, Summer 1994, pp. 27-37.

The United States government is hindered by the
uncertainty which pervades nearly every aspect of domestic activity and
foreign policy. Unanticipated political, social, and economic phenomena--disorder,
globalization of national economies, and various regional attempts to integrate
economic and national security policies--suggest the complexity of the
environment in which US defense planning is being conducted. It is within
this dynamic context that the defense industrial base must be managed to
ensure that risks to national security--some old, some new, some merely
unfamiliar--are not aggravated by failure to preserve and exploit our competitive
advantages in technology and productivity.

It is difficult to isolate and analyze even the predominant factors
that affect national security policy and national military strategy. Many
of the defining policies, doctrines, judgments, procedures, and organizational
relationships which once guided us in such matters have not been validated
or reaffirmed since 1992. The division of labor among nations, within the
federal government, and between our domestic public and private sectors
is confused. We struggle to assign labels or devise enduring structures
to deal responsibly with industrial and resource issues derived from dramatically
altered threat assessments, military force structure decisions, and the
required adjustments in national and military operational and logistical
infrastructures. Much-abused paradigms and "New World Orders"
emerge and are disavowed or discredited before the ink is dry. Most observers,
and certainly many of the participants, accept the conclusion of the 1993
Naval War College Global War Games that "change itself has become
the norm." We must seek to understand and manage this process of living
with constant change if we intend to preserve our national interests.

We are replacing Cold War assumptions and concepts whose purpose was
to ensure a robust and responsive military component of national security
strategy. Four topics among the many that confront defense planners in
this new environment deserve particular attention. All have in common a
search for reasonable assumptions and affordable policies to exploit what
is undoubtedly our greatest national strength: a highly competitive and
technologically advanced industrial base which can be sustained largely
by market forces independent of direct intervention by the federal government.
The four topics are the relationship between mobilization planning and
the industrial base; the requirement to develop and assess resource preparedness
options; the need to remain aware of how the defense technology industrial
base is changing; and the Federal Emergency Management Agency's evolving
role in managing US industrial preparedness.

Industrial Preparedness and Mobilization

One cannot consider mobilization without assessing the strategic implications
of industrial preparedness. It may be fashionable to disavow the circumstances
under which we would mobilize some or all of our production means. Nevertheless,
we have to consider such admittedly worst-case circumstances when managing
the defense industrial base. Any nation needs a credible mobilization capability
to deal with an emergent threat which exceeds the capability of its active
military forces and their means of sustainment. Public support for limited
US mobilization capability, while reasonably assured, cannot be assumed
to include industrial preparedness measures required to mobilize beyond
peacetime levels of operation. Herein lies the nemesis of defense planners
in and out of uniform and in and out of government: how to retain the organizational
structure, human skills, and resource base needed in a crisis to balance
requirements, response time, and essential production capacities.

Even those military planners most dependent on the adequacy of industrial
preparedness falter when choosing between immediate operational capability
and longer-term requirements. All the armed services have been sacrificing
investment accounts since 1990 to maintain near-term readiness.[1] In the
absence of compelling warning indicators it is easy to rationalize loss
of production capability that is perceived to be in excess of immediate
needs. Some might conclude that our current emphasis on swift victory seeks
to make a virtue of necessity, substituting speed for the reduced ability
to sustain the force.

Industrial preparedness requirements--plans for production surges, equipment
modifications, and new systems--have not changed substantially since the
end of the Cold War. It is still true that peacetime planning and funding
will not sustain a significant military engagement or compensate for supply
shortfalls during mobilization. If anything, the Bottom-Up Review (BUR)
has widened the normal gap between peacetime and crisis readiness requirements.
Industry must nevertheless be able to produce and sustain weapon systems
that incorporate our technological advantages. Those systems use sophistication,
rather than volume, to prepare the battlefield. They minimize infrastructure
support requirements and they enable short-term power projection as a policy
option. Industrial preparedness response in a crisis will have to be carefully
tailored, becoming "smaller," quicker, and more sophisticated,
if we are to remain dominant into the 21st century.

The planning, response, and recovery imperatives of this new era require
a national industrial preparedness program that has the clear endorsement
and full support of the President. We need to support an industrial preparedness
planning system which would implement the National Security Strategy and
be systematically updated, tested, and evaluated. Most important, an executive-level
federal agency must be able to translate White House support, required
to meet statutory and presidentially delegated responsibility, into effective
programs that develop, maintain, and fund the activities associated with
national industrial preparedness planning. Periodic examination and presentation
of industrial preparedness deficiencies would be integral to the agency's
mission. That task presently belongs to the Federal Emergency Management
Agency (FEMA).

Resource Preparedness Options

Federal agencies and industry, many of the latter having surged production
during the Gulf War, have analyzed the lessons from that war to validate
current industrial requirements, identify production problems, and define
potential new requirements and associated preparedness problems. In support
of this work, the Institute for Defense Analyses (IDA) has used the Critical
and Strategic Materials Stockpile planning process to design and assess
a number of future national security resource preparedness options. Follow-on
work, which builds on macro and micro economic analysis procedures used
by the Defense Department and civil agencies, demonstrates the need for
a systematic industrial assessment methodology, one which incorporates
key planning assumptions including the important dimension of time.[2]

The end of the Cold War and the outcome of the BUR have not done away
with the requirement to examine the changing nature of potential threats
and US capacity to respond to them. The required assessments can be illustrated
with two cases that are similar to the two major regional conflicts (MRCs)
portrayed in the BUR. The results demonstrate how, given minimal planning
assumptions (such as approximations of defense guidance and the Joint Military
Net Assessment scenarios), we can anticipate industrial base problems and
related constraints that would impede, if not prevent, execution of national
security strategy in response to BUR-like scenarios.

The methodology uses existing federal agency models to represent relationships--within
specific critical industrial sectors--of prime contractors and their essential
sub-tier producers and vendors.[3] The methodology assumes that the time
required to identify and evaluate potential industrial bottlenecks and
related shortfalls in peacetime is as valuable to policy formulation as
the time it will take to produce new end items and components in a crisis.
In anticipation of their use in contingencies, the models can and should
be run regularly to support research projects and exercises. The models
can also be used routinely to explore peacetime resource options, measuring
and assessing investment risks.

Within the limits of the assumptions that underlie the models, the illustrative
cases identify the 15 US industrial sectors that could not recover from
two MRCs without government intervention. The models can estimate the nature
of manufacturing shortfalls and the time required to recover from first
one and then a second MRC. The models also take into consideration graduated
mobilization response options to suggest how each of the 15 problematic
industrial sectors might be managed to prevent shortfalls. This capability
suggests how we might operate successfully within the fragile confines
of the "two MRC" scenario. When coupled with a mobilization planning
system, this assessment capability would suggest ways to prioritize policy
options. It could also indicate when we ought to temporize during a developing
crisis via diplomatic or economic responses.

The research goes beyond examining emergency preparedness options. It
could be used to guide the process of apportioning depot maintenance work
between public and private sources; to establish capability thresholds
for the 1995 Base Closure and Realignment process, and to suggest appropriate
divisions of labor with allies and potential coalition partners in any
contingency.

The models provide only general indicators of industrial sector difficulties.
Nevertheless, they can show us where to look for specific industrial base
problems that, if left undiscovered until a crisis, could degrade readiness
or constrain military response options. Such information, used with tailored
intelligence assessments of the capabilities and limitations of an adversary,
could focus on the flexible and sustainable industrial preparedness needed
to manage a crisis or to prevail on the battlefield. The models could become
essential management tools in political and military command centers, and
increasingly in corporate board rooms where key industrial response decisions
will be made in future crises.[4]

Evolution Within the Defense Technology Industrial Base

The defense technology industrial base (DTIB) is adjusting, or being
adjusted, to compensate for changing defense requirements and significantly
altered civilian and government business opportunities. Defense budgets
have fallen nearly 40 percent since 1985.[5] This decline has curtailed
independent research and development activities as industry adjusted to
shorter production runs and short term contracts. It has led to consolidations
as prime contractors focus on core competencies, and to erosion of the
critical sub-tier of industrial contractors and vendors.

Two groups, with motives not necessarily in harmony, are fully engaged
in adjusting the DTIB. Members of Congress and the Administration are attempting
to change the business environment, including the culture within which
the defense industry must operate, while protecting their constituents.
Conversely, individual corporations and defense suppliers, driven by the
changed defense market, are facing the dilemma of refocusing on core competencies
that may have little, if any, relevance to known or anticipated defense
needs.

Diversification has been proposed as a panacea for industries seeking
alternatives to defense contracts. While it has become apparent that diversification
is generally not a useful option for major defense producers, the experience
of the past four years has produced some alternative strategies. These
include continued low-level production to preserve a "warm" production
base; constructive international interdependence; expanded dual-use and
commercial practices and capacity; and "prototyping" to develop
advanced weapon systems, keep the technologies current, and defer full
production. While each alternative offers some promise, none of them meets
all requirements. Preservation of a warm base, while easily the preferred
solution, loses its appeal when overhead costs and prohibitively high unit
costs must be justified to constituents and shareholders.

Retention of excess capacity, even for national defense purposes, will
be a hard sell as the defense industry moves toward marketplace business
practices. The Seawolf submarine program and subsidies to shipyards
capable of producing aircraft carriers will remain rare exceptions. Consequently,
without excess capacity we may not be able to surge in order to sustain
two MRCs, let alone recover quickly from their combined effects on stocks
of munitions, end items, major subassemblies, and repair parts. Plans based
on unexamined assumptions--about the duration of an operation or the sustainability
of committed forces--can be confounded by opponents willing to accept protracted
engagements to ensure that the United States achieves neither its military
nor its diplomatic objectives.

International cooperation under the best of circumstances, such as the
carefully nurtured standardized and largely interoperable NATO environment,
presents many difficulties. Even at the peak of the Cold War, NATO agreements
were profoundly influenced by differing national approaches to defense
procurement. Traditions of government intervention or direct support to
industry, and national political, social, and economic demands, frequently
proved more compelling than national security. Not unlike members of Congress,
Western European parliamentarians see most industrial preparedness initiatives
and co-production schemes through a different prism than civil and military
resource planners. Tangible short-term gains must be readily apparent,
while long-term advantages have to be highly leveraged to build and nurture
fragile international commitments to defense production.

Dual-use and commercial applications, even with relaxed specification
and procurement guidelines, are quickly depleted as one moves up the subcontractor
hierarchy to the few prime contractors that serve as system integrators.
Military-unique and technology-specific capabilities will continue to be
found exclusively within the very small family of prime contractors. The
unprecedented commitment of DOD and the Congress to remove acquisition
constraints which have prevented some defense contractors from exploiting
defense-funded programs in civilian applications is encouraging, as long
as expectations remain realistic. Flexible manufacturing and other innovative
measures to shorten production cycle time and improve responsiveness could
significantly enhance the value of this alternative.

Finally, prototyping, like the others, offers some relief by creating
options which preserve unique manpower skills, retain a warm base, and
foster continuing product enhancement and technology integration. However,
costs associated with prototyping limit applications of this alternative.

The challenge for government and industry alike is to guide the evolution
of the defense technology industrial base to exploit the advantages of
each of the four alternatives described here. None of the four is entirely
satisfactory. Overhead costs, vulnerability to alliances and coalitions
when involved with offshore production and procurement, unrealistic assumptions
about diversification and dual use concepts--all challenge industry and
government to find ways to reduce the burden of defense spending. Nor should
we forget that companies are in business to make money; they will not be
able to bear a disproportionate share of the costs of any of the alternatives.
Perhaps maintaining the essential features of the defense technology industrial
base is part of the insurance policy that Americans expect their government
to establish for them.

The Role of the Federal Emergency Management Agency

The Federal Emergency Management Agency (FEMA) is completing its reorganization
from a traditional, hierarchical vertical structure to a more horizontally
oriented, functionally aligned organization emphasizing teaming and program
delivery.[6] It remains to be seen how the agency plans to meet its national
security emergency preparedness obligations while creating a government
mechanism that works better and costs less than its predecessor.

A number of changed circumstances will define the choices available
to logisticians, industrialists, and national decisionmakers in responding
to crises. Peacekeeping, whether under the UN or with coalition partners,
response to domestic or international disasters, crisis management, and
other demands on national resources can no longer be considered lesser
included requirements of planning for a global Cold War. Focused planning
is now required for each of the potential types of operational requirements
that the nation faces.

As we depend increasingly on dual-use and commercial elements of the
industrial base to meet national security requirements, our view of preferred
ways and means to intervene in a crisis may also change. In many instances
it will be civil--rather than defense--industrial resources and capabilities
that will determine the strategy employed, allowable recovery time, and
affordability, political as well as economic.

New emergency management roles and the optimal organization to fulfill
them can go well beyond current experiments with functional structures
and matrix management to fulfill agency responsibilities. The "agile
manufacturing" concepts now evolving in industry offer an inherently
more fluid and flexible approach to crisis response and management. The
Iacocca Institute at Lehigh University has worked closely for the past
three years with American business leaders, many of whom have played essential
roles in defense preparedness, to develop a vision of an "agile enterprise."
Such an enterprise will compete aggressively on the strength of its employee
skill base, a horizontal and flexible management structure that empowers
individuals and teams, and flexible content, process, and communications
technology that gets the right information to the right person at the right
time.[7]

One source defined the concept of agility as follows:

Agile manufacturers of the future will be characterized by cooperativeness;
rapid production of high-quality, customized goods; decentralized decision-making
power, and an information infrastructure that links customers, manufacturing,
engineering, marketing, purchasing, financing, sales, inventory, and research.
Speed in responding to market will be the principal virtue of agile companies,
which will produce-to-order rather than stock-and-sell.[8]

To get to the envisioned three-day cycle for automobile manufacturing
(from customer order to ready for shipment), agile manufacturing must begin
with government acquiescence to its first characteristic: cooperativeness.
The "agile" approach is intended to carry over into other product
lines and industrial sectors, including those essential to national security.

We should consider how to apply the precepts of "agility"
to bureaucratic structures to improve government coordination and responsiveness
by drawing upon all available resources in a crisis. The concept emphasizes
the key strength of agility, the ability to thrive in an environment of
continuous and unanticipated change.

One breakout proposal for applying "agile" manufacturing functions
to bureaucracies is through a "virtual organization." Such an
entity would exist as a communications forum for managing ongoing, task-focused,
customer-oriented temporary emergency response arrangements. Each civil
resource agency as well as DOD would participate in the forum. This concept
of teaming on resource issues would offer two advantages. First, it would
build on the core competencies developed within FEMA and the other civil
resource agencies during the Cold War. More important, the virtual organization
would be independent of the structural framework and overhead associated
with Cold War emergency planning processes and procedures. Many of those
cumbersome organizational relationships and check-and-balance procedures
were created for worthy bureaucratic purposes which have been long forgotten.
The virtual organization concept can thus redefine the major components
of national security emergency planning.

To manage national security emergency planning through a virtual organization,
participants would concentrate on four functions which, while similar in
name to more conventional processes in established bureaucratic structures,
would differ significantly from them in concept and execution. The four
functions are warning time, mobilization, response, and information management.

Warning Time

It would be one of the tasks of the virtual organization to monitor
warning data, synthesizing it into information required to develop policy
options in the four categories. The agile principle would maintain an information
infrastructure that links customers, research, and all of the related intelligence
activities in a forum through which any member of the virtual organization
could contribute to policy-development and problem-solving processes. This
modified concept of what we mean by warning would lead to defining "actionable
warning" times appropriate to each of the four categories.

Mobilization

"Agile mobilization" discounts the value of overt mobilization
measures used in the past, whether to signal national resolve, to help
manage an emerging crisis, or to enhance the credibility of our deterrent
posture. The agile environment suggests that "stealthy mobilization"
may be required to mask operational constraints or resource shortfalls
which could reveal our capacity to sustain current operations or to deal
with a second major military contingency. New scenarios suggest instances
when selective and tailored surge or mobilization efforts might send the
wrong signal to potential allies, coalition partners, or adversaries. Awareness
of resource vulnerabilities, shortfalls in critical end items, and the
absence of compensating reserves or augmentation options could encourage
competitors and adversaries to take calculated risks that would have been
unthinkable during the Cold War. We may find that this potential need for
covert industrial preparedness limits the extent to which we can exploit
certain dual-use and commercial manufacturing options. It could also compound
problems that we already have with getting access to data and to intellectual
property rights.

Response

In "agile response," flexible mobilization response should
replace graduated mobilization response to deal with the increasingly prevalent
concern for short-notice operations. Short-notice deployments can become
vulnerable because they require us to rapidly mass in a distant location
the units and the supplies essential to decisive victory. Gradualism, politically
safer and certainly less traumatic for the economy, may become a luxury
that we cannot afford. Management of response time may now be more important
than marshaling and husbanding the resources that could improve the odds
of success or ensure operational sustainability. To take full advantage
of all available resources, military and civilian leaders will have to
adjust strategy, campaign planning, and perhaps even tactical decisions
to keep safely within the limits imposed on resources by managed warning
time, industrial mobilization, and limited response options.

Information Management

Information is the enabling technology for agile operations. Hence the
prospect of "information wars" involving command, control, communications,
and intelligence (C3I) creates a new dimension in any potentially hostile
environment. The media's role in crisis management and the associated fragility
of public opinion must be considered, not just for the broad issues, but
also for the details of day-to-day operations. Unless constructively managed
within our constitutional framework, national commitment and resolve in
a crisis may prove to be an elusive asset. It would not be difficult to
design a comprehensive gateway system within the emergency preparedness
community on which the virtual organization would be based. Industry is
already far out in front of government in many aspects of applying automation
technology to solving problems. The Iacocca Institute's developments in
agile manufacturing and data exchange systems, already operating within
key industrial sectors, are helping us to learn how to use information
in new ways.

Conclusion

These concepts provide glimpses of powerful forces at work within the
US technology and industrial base. The forces have helped to identify significant
emergency preparedness deficiencies and to suggest doctrinal, analytical,
and organizational remedies. To profit from change, and to ensure acceptable
levels of national security, we need a perspective on national security
emergency preparedness that acknowledges the inherent limitations of peacetime
production. We need to assess repeatedly and accurately our present response
capabilities, to discern trends, and to identify associated resource consequences
for policymakers. We need an awareness of options shared with--and already
being pursued by--government and industry. We need a more or less permanent
process for examining national emergency preparedness to retain freedom
of action with constrained military and civilian assets. Success with the
four topics examined here--mobilization planning and the industrial base;
the requirement to develop and assess resource preparedness options; the
need to remain aware of how the defense technology industrial base is evolving,
and the evolving role of the Federal Emergency Management Agency regarding
industrial preparedness issues--will take us a long way toward meeting
the challenges of managing civil and military emergency response requirements
in the years ahead.

Time remains our greatest vulnerability and yet potentially our greatest
strength in managing the US defense industrial base. As we become accustomed
to living with change, integration of time considerations into management
of defense industrial base resources will become the yardstick by which
we measure the need for--and the adequacy and affordability of--our industrial
preparedness.

NOTES

The author acknowledges contributions to this article by John Brinkerhoff,
Dr. James Thomason, Dr. Ivars Gutmanis, and Dr. James Blackwell.

1. John M. Collins, "Military Preparedness: Principles Compared
with U.S. Practices," Congressional Research Service Report for
Congress, 21 January 1994, pp. 27-30.

2. This work reflects a three-year IDA effort with FEMA to make military
and civilian industrial analysis methods mutually supportive and to actively
engage industry in the assessment process through a series of resource
preparedness seminars. See James S. Thomason, "Designing and Assessing
National Security Resource Preparedness Options for the Post-Cold War Era,"
Institute for Defense Analyses Paper P-2847, June 1993.

3. The sectors are defined by the Standard Industrial Codes (SICs) widely
used by industry and the Department of Commerce which take advantage of
the extensive data collected by the Census Bureau. The federal government
spends hundreds of millions of dollars each year to collect this data which
drives a wide range of assessments and forecasts. In several cases the
critical sectors identified, such as aircraft, represent an aggregate of
several SICs to capture the business activity of the broad industrial sectors
and their critical sub-tiers. The IDA and FEMA models concentrate on the
400-plus sectors that are most important to defense industrial base planners.
Dr. Thomason's work captures the most critical sectors as a consequence
of anticipated DOD budget activity in response to projected military operations
for specific major regional conflicts. Bridge tables or other tracking
codes can be used to link the SICs to DOD budget activity.

4. As we learn to exploit fully dual-use industrial base capability
and commercial products, industrial planning and business decisions will
grow in importance. The inherent loss of control as we shift away from
heavy reliance on government owned or controlled production facilities
can be offset if we can still keep track of residual capability and production
options. It will be essential to have fully compatible measurement standards
and benchmarking methods that can support both civilian and military planning
and extend into the rapidly growing domain of flexible manufacturing.

6. FEMA has important coordination, assessment, and reporting responsibilities
under the National Security Act of 1947, the recently updated Defense Production
Act of 1950, and Executive Order 12656, which governs National Security
Emergency Preparedness. The all-hazard focus of the current threat environment
does not weaken the relevance of these key sources of preparedness guidance.

7. The agile manufacturing initiative was launched by the Iacocca Institute
at Lehigh University with DOC and DOD encouragement to enhance inherent
American strengths in technology. The initiative moves beyond lean production,
just-in-time inventory management, and total quality control, to an even
more competitive, customer-oriented approach. After three intense years
of effort the program--a dynamic partnership with industry from the start--gained
congressional and White House recognition as well as sustained funding.
It has been transformed into an industry-led corporation, the Agile Manufacturing
Enterprise Forum, with the Iacocca Institute now playing a supporting role.
Heavy emphasis is being placed on translating the concept into production
cycle and market integration experience that will further refine the process
and make its precepts available to a larger segment of US industry including
small business. For additional background information see the two-volume
report, "The 21st Century Manufacturing Enterprise Strategy,"
available from the Iacocca Institute.

8. Machine Design, 20 February 1992, p. 32.

Mike Austin is a member of the Federal Emergency Management Agency (FEMA)
Interagency Planning and Liaison staff. Previous FEMA assignments include
Chief of the Resource Requirements Branch in the Office of Mobilization
Preparedness, and US Representative to the NATO Senior Civil Emergency
Planning Committee in Brussels. He is a retired US Navy officer with broad
experience in crisis management and political-military affairs.